THE NATIONAL DEBT CONTROVERSY

Randall Holcombe, John Jackson and Asghar Zardkoohi

Kyklos, 1981, vol. 34, issue 2, 186-202

Abstract: Some analysts have argued that the burden of public debt is passed on to the future because public debt competes for funds in private capital markets, which lowers capital accumulation. Others argue that using debt finance rather than taxation will have no real effects because an increase in debt will be offset by an equal increase in savings, in anticipation of the higher future taxes that will be needed to service the debt. An empirical test finds that savings changes are only about 20 percent of debt changes, ceteris paribus, implying that most of the burden of the debt is passed on to the future through reduced capital accumulation.

Date: 1981
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